July 16, 1991
CLA-2 CO:R:C:S 555648 KCC/RDCATEGORY:CLASSIFICATION
MarkingTARIFF NO.:9802.00.80
Mr. Ken W. Read
Baxter Healthcare Corporation
Convertors Operation
One Butterfield Trail
El Paso, Texas 79906RE: Surgical Towels created from U.S.- and foreign-origin fabric by cutting, folding and hemming.Assembly; incidental operations; country of origin; 19 CFR 12.130; 088078; 733601; L'Eggs; marking; quota and visa; 6307.90.8610; 9813.00.05
Dear Mr. Read:
This is in response to your letters dated April 24, October 11, and 24, 1990, requesting a ruling concerning the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), and country of origin marking requirements to surgical towels imported from Mexico. Samples of the surgical towels were submitted for examination. We regret the delay in responding.FACTS:
Baxter intends to manufacture high quality surgical towels using U.S.- and foreign-origin fabric in rolls. Baxter will import rolls of foreign-origin fabric into the U.S. under subheading 9813.00.05, HTSUS, or under a transportation and exportation bond. See, section 18.10, Customs Regulations (19 CFR 18.10). In the U.S., some of the U.S. and foreign fabric will be quality evaluated and cut to length or to length and width, while other U.S. and foreign rolls of fabric will be exported to Mexico for cutting operations. The width of the rolls of fabric will be approximately 18 inches, 36 inches, or wider. The 18 inch wide rolls will be cut to approximately 30 inch lengths. The 36 inch wide rolls will be cut to approximately 18 inches in width by 30 inches in length. The wider width materials will also be cut to approximately 18 inches in width by 30 inches in length. The uncut U.S.- and foreign- origin fabric in rolls, the cut fabric pieces and U.S. thread will be shipped to Mexico.
In Mexico, the uncut U.S. and foreign fabric will be cut to the proper dimensions as described above. The cut fabric will then be subjected to a hemming operation using U.S.-origin thread. The fabric pieces which were merely cut to length (18 inch rolls) require a double fold and finish hem on only the cut ends. The fabric pieces which are cut to length and width (36 inch rolls) require a double fold and finish hem on both ends and one side. The wider width fabric pieces which are cut to length and width also require a double fold and finish hem on both ends and sides. The surgical towels are then washed, dried to remove lint, folded and packaged.
The surgical towels will be packaged into surgical procedure packs. The packs not only include a number of surgical towels but other articles necessary to perform a surgical procedure, such as gowns, drapes, table covers, surgical blades, needles, etc. The surgical procedure packs (approximately 2-10) are then packaged into cardboard cases or 1,000 to 1,500 individual surgical towels will be bulk packaged into cardboard cases.
After shipment to the U.S., the surgical procedure packs contained in the cardboard cases are sterilized and placed in the distribution system for sale by the case to hospitals, surgical clinics, etc. The bulk packaged surgical towels are repacked into the above described surgical procedure packs which are then packaged into marked cases, sterilized and placed in the distribution system.ISSUE:
I. Whether the surgical towels will be entitled to the partial duty exemption available under subheading 9802.00.80, HTSUS, when returned to the U.S.
II. What are the country of origin and the proper marking requirements applicable to the imported surgical towels?
III. What are the applicable tariff classification and the quota and visa categories for the surgical towels?LAW AND ANALYSIS:
I. Applicability of subheading 9802.00.80, HTSUS
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating, and painting.
All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).
Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), states in part that:
[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.
Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), provides that the assembly operation performed abroad may consist of any method used to join or fit together solid components, such as welding, soldering, riveting, force fitting, gluing, laminating, sewing, or the use of fasteners.
Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operations. However, any significant process, operation or treatment whose primary purpose is the fabrication, completion, physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS, to that component. See, 19 CFR 10.16(c).
According to section 10.14(b), Customs Regulations (19 CFR 10.14(b)), foreign-made articles or materials may become products of the U.S for purposes of subheading 9802.00.80, HTSUS, if they undergo a process of manufacture in the U.S. which results in their substantial transformation. This provision further states that a substantial transformation occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character, or use which is different from that originally possessed by the article or material.
Section 12.130, Customs Regulations (19 CFR 12.130), sets forth the principles for making country of origin determinations for textile and textile products subject to section 204 of the Agricultural Act of 1956, as amended (7 U.S.C. 1854) ("section 204"). Pursuant to 19 CFR 12.130, the standard of substantial transformation governs this determination. The factors to be applied in determining whether or not a manufacturing operation is substantial are set forth in 19 CFR 12.130(d) and (e).
Section 12.130 (e)(iv) states that a textile article will usually be a product of a particular country if the cutting of the fabric into parts and the assembly of those parts into the completed article has occurred in that country. However, 19 CFR 12.130(e)(2)(ii) states that a material will usually not be considered to be a product of a particular foreign country by virtue of merely having undergone cutting to length or width and hemming or overlocking fabrics which are readily identifiable as being intended for a particular commercial use.
We have previously held that the country of origin of surgical towels is the country where the fabric for the surgical towels is manufactured. In Headquarters Ruling Letter (HRL) 088078 dated November 14, 1990, Customs stated that "[a]though most of the manufacturing processes at issue occur in Mexico, the weaving of the raw material in China is deemed to be the factor which contributes most to the creation of the final product. The fabric constructed in China is manufactured in such a way as to be readily identifiable in the industry as surgical toweling fabric; the special weave and the blue dye of the raw material further marks its intended use in the manufacture of these towels." See also, HRL 733601 dated July 26, 1990, which held that toweling cut, hemmed, washed, shrunk, and folded in Mexico or the Philippines does not constitute a substantial transformation, so the country of origin of the surgical towels is China--the country where the fabric was manufactured.
Therefore, in regard to this case, the foreign-origin fabric which is cut to length or to length and width in the U.S. remains a product of the country where the fabric was manufactured, and is not entitled to the partial duty exemption available under subheading 9802.00.80, HTSUS. Moreover, we wish to point out that material entered under bond pursuant to subheading 9813.00.05, HTSUS, for manufacture or production, and then exported for assembly operations abroad, is ineligible for subheading 9802.00.80, HTSUS, treatment when returned to the U.S. See, U.S. Note 1(d), Subchapter II, Chapter 98, HTSUS.
Additionally, only the U.S.-origin fabric cut to length or to length and width in the U.S. and hemmed in Mexico and the 18 inch wide U.S.-origin fabric cut only to length in Mexico and hemmed there will be eligible for the partial duty exemption available under this tariff provision. The U.S.-origin fabric which is cut to length and width in Mexico will not qualify for subheading 9802.00.80, HTSUS, consideration because the fabric fails to meet the requirements of clause (a) of this tariff provision. Cutting fabric to width and length abroad is not an acceptable assembly operation or operation incidental to assembly, but rather is a further fabrication of the fabric. These cutting operations are similar to cutting fabric to a specific pattern piece in order to enter it into a proper assembly (i.e., sewing) operation. See, 19 CFR 10.16(c)(2).
The operations that entail sewing fabric onto itself using any type of stitch, including the tucking, shirring, pleating, and hemming operations will be considered acceptable assembly operations. See, L'Eggs Products, Inc. v. United States, Slip Op. 89-5, 13 CIT , 704 F.Supp. 1127 (CIT 1989). Cutting the 18 inch wide fabric to length is considered an acceptable operation incidental to the assembly process pursuant to 19 CFR 10.16(b)(6). The washing operation performed in Mexico is an acceptable incidental operation pursuant to 19 CFR 10.16(c)(1). Folding the surgical towels after assembly is also considered an operation incidental to the assembly process pursuant to 19 CFR 10.16(b)(7), which states that final folding operations are incidental to the assembly process. Therefore, the U.S.-origin fabric pieces cut in the U.S. and the 18 inch wide U.S.-origin fabric cut to length in Mexico, which are subjected to hemming, washing and folding operations in Mexico, will qualify for a duty allowance under subheading 9802.00.80, HTSUS.
II. Country of Origin and Marking Requirements
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that, unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 C.C.P.A. 297 at 302 (1940). Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), provides that "country of origin" means the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations.
Because the article in question is a textile product, it is governed by 19 CFR 12.130 which provides that generally the country of origin of a textile product is that foreign territory, country or insular possession where the article last underwent a substantial transformation. However, there is an exception to the general rule set forth in section 12.130(c), which provides that U.S. textile articles that are advanced in value or improved in condition, or assembled in a foreign country are considered to be products of that foreign country.
Based on our previous analysis, the country of origin of the towels made from foreign-origin fabric will be the country where the foreign fabric was manufactured. The cutting and hemming of the U.S.-origin fabric in Mexico advances the value and improves the condition of fabric and thus renders them products of Mexico. Accordingly, the surgical towels must be marked with the appropriate country name, legibly, conspicuously and permanently. Those towels which are eligible for importation under subheading 9802.00.80, HTSUS, may be marked "Assembled in Mexico" or a similar phrase. See, section 10.22, Customs Regulations (19 CFR 10.22).
Pursuant to 19 U.S.C. 1304(a)(3)(D) and section 134.32(d), Customs Regulations (19 CFR 134.32(d)), articles for which the marking of the containers will reasonably indicate the country of origin of the articles are excepted from individual marking. This exception applies in cases where the articles are imported in a properly marked container and Customs officials at the port of entry are satisfied that the ultimate purchaser will receive it in its original unopened marked container.
Customs has previously ruled that in cases, such as with surgical towels, where the imported item must be sterile and an ultimate purchaser would be unable to use the product unless it was received in its sterile sealed container, the imported article is entitled to the exception set forth at 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d). See, HRL 733678 dated August 30, 1990. In this case, the surgical towels will be packaged into sterilized surgical procedure packs. Because the ultimate purchasers, hospitals and surgical clinics, will receive the imported towels in the sterilized surgical procedure packs, the surgical towels can be excepted from marking under the provisions set forth at 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d), provided the towels are imported in surgical procedure packs that are properly marked to indicate the country of origin of the surgical towels.
Since the bulk packaged surgical towels will be repackaged into the sterilized surgical procedure packs after importation, they are subject to the requirements of section 134.34, Customs Regulations (19 CFR 134.34), which provides that an exception from marking may be authorized in the discretion of the district director under 19 CFR 134.32(d) for imported articles which are to be repacked after release from Customs custody under the following conditions: (1) The containers in which the articles are repacked will indicate the origin of the articles to an ultimate purchaser in the U.S.; (2) The importer arranges for supervision of the marking of the containers. Therefore, approval for marking the surgical procedure packs instead of the towels must be obtained from the district director at the port of entry.
Because no origin or other information has been provided regarding the other articles in the surgical packs, this ruling is limited to the country of origin marking requirements of the surgical towels.
III. Tariff Classification and the Applicable Quota and Visa Categories
The individual surgical towels at issue are classified under subheading 6307.90.8610, HTSUS, which provides for other made up articles, other, other, surgical towels. See, HRL 087470 dated February 1, 1991. The rate of duty is 7% ad valorem, and falls within textile category 369.
Please note that the foreign fabric imported into the U.S. under subheading 9813.00.05, HTSUS, (a temporary importation bond (TIB)) will be charged against the appropriate country's quota restraint levels or subject to any textile visa requirements.
Additionally, the U.S. fabric which has been advanced in value and improved in condition by the Mexican operations is considered to be of Mexican origin and will be charged against Mexican quota and visa when entered into the U.S. The foreign fabric which remains the country of origin where it was made will be charged against that country's quota and visa when it enters the U.S. from Mexico.
Due to the changeable nature of the statistical annotation (the ninth and tenth digits of the classification) and the restraint (quota/visa) categories applicable to textile merchandise, you should contact your local Customs office prior to importation of the merchandise to determine the current status of any import restraints or requirements.
The designated textile and apparel category may be subdivided into parts. If so, visa and quota requirements applicable to the subjected merchandise may be affected. Since part categories are the result of international bilateral agreements which are subject to frequent renegotiations and changes, to obtain the most current information available, we suggest that you check, close to the time of shipment, the Status Report on Current Import Quotas (Restraint Levels), an internal issuance of the U.S. Customs Service, which is available for inspection at your local Customs office.HOLDING:
From the information and samples submitted, it is our opinion that the foreign operations performed on the U.S.-origin fabric cut to length or to length and width in the U.S. and the 18 inch wide U.S.-origin fabric cut to length in Mexico are considered proper assembly operations or operations incidental to the assembly process. Therefore, these surgical towels may be entered under subheading 9802.00.80, HTSUS, with allowances in duty for the cost or value of the U.S. fabric and thread incorporated therein, upon compliance with the documentary requirements of 19 CFR 10.24.
The surgical towels are classified under subheading 6307.90.8610, HTSUS, dutiable at the rate of 7% ad valorem, and fall under textile category 369.
The country of origin of the foreign fabric is the country where the fabric was manufactured. Pursuant to 19 CFR 12.130(c), the country of origin of the U.S. manufactured fabric is Mexico, as the U.S. fabric was advanced in value and improved in condition by the Mexican operations.
Pursuant to 19 U.S.C. 1304(a)(3)(D) and 19 CFR 134.32(d), the surgical towels contained in the surgical procedure packs may be properly marked to indicate the country of origin of the surgical towels on the surgical procedure packs containers. The surgical towels which will be repackaged after importation into the U.S. are subjected to the repackaging requirements of 19 CFR 134.34. The towels which are eligible for importation under subheading 9802.00.80, HTSUS, may be marked "Assembled in Mexico" or other similar wording pursuant to 19 CFR 10.22.
Surgical towel fabric entering the U.S. under subheading 9813.00.05, HTSUS, will be charged against the appropriate country's quota restraint levels or subject to any textile visa requirements. The U.S. fabric which is considered to be of Mexican origin will be charged against the Mexican quota and visa. The foreign fabric which country of origin is the country where the fabric was manufactured will be charged against the appropriate country's quota and visa when entering the U.S. from Mexico.
Sincerely,
John Durant, Director
Commercial Rulings Division